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Promoting inclusive growth Lithuania OECD economic survey July 2018

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Promoting inclusive growth Lithuania OECD economic survey July 2018

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Promoting inclusive growth Lithuania OECD economic survey July 2018

  1. 1. OECD ECONOMIC SURVEY OF LITHUANIA 2018 Promoting inclusive growth Vilnius, 5 July 2018 @OECD @OECDeconomy http://www.oecd.org/eco/surveys/economic-survey-lithuania.htm
  2. 2. Incomes are converging 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 GDP per capita, 2010 USD PPP Lithuania OECD Source: OECD Economic Outlook database. 2
  3. 3. Unemployment is declining 0 2 4 6 8 10 12 14 16 18 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % labour force 15-74 Unemployment rate Source: OECD Labour force statistics database. 3
  4. 4. Export performance is robust 80 90 100 110 120 130 140 150 160 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Index 2005=100 Export performance¹ Lithuania Latvia Estonia Poland 1. Export performance is measured as actual growth in exports relative to the growth of the country’s export market, which represents the potential export growth for a country assuming that its market shares remain unchanged. Source: OECD Economic Outlook database. 4
  5. 5. The budget is now in surplus -10 -8 -6 -4 -2 0 2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Government net lending, in % of GDP Source: OECD Economic Outlook database. 5
  6. 6. Poverty remains high 0 2 4 6 8 10 12 14 16 18 20 Denmark Finland CzechRep. Iceland Netherlands France Luxembourg Norway SlovakRep. Austria Ireland Slovenia Sweden Germany Belgium Switzerland Hungary NewZealand UnitedKingdom Poland OECD Portugal Australia Italy Korea Canada Greece Spain Chile Estonia Japan Latvia Lithuania Mexico UnitedStates Turkey Israel % Relative poverty rate 2015 or latest year available Note: The relative poverty rate is the ratio of the number of people whose income falls below the poverty line; taken as half the median household income of the total population. The indicator is calculated in disposable income after taxes and transfers. Source: OECD Income Distribution and Poverty database. 6
  7. 7. Well-being could be improved 0 2 4 6 8 Housing Income and jobs Community Education Environment Health Life Satisfaction Safety OECD Lithuania Lowest OECD¹ 1. Lowest OECD refer to the 17 countries with the lowest score among the OECD countries. Data are for 2016 or latest available year. Source : OECD Better life index indicators database; Eurostat; Gallup database; and World Bank World Development Indicators. 7
  8. 8. The New Social Model improved labour market flexibility… 0 0.5 1 1.5 2 2.5 3 3.5 NewZealand UnitedStates Canada UnitedKingdom Chile Australia Estonia Ireland Hungary Japan Switzerland Lithuania(post-reform) Iceland Finland Korea Israel SlovakRep. OECD Greece Norway Denmark Turkey Spain Slovenia Poland Lithuania(pre-reform) Austria Sweden Mexico CzechRep. Portugal Luxembourg France Germany Italy Latvia Netherlands Belgium Strictness of employment protection legislation: Regular workers Scale from 0 (least restrictions) to 6 (most restrictions), latest year Note: The indicator is calculated in disposable income after taxes and transfers. Source: OECD Income Distribution and Poverty database. 8
  9. 9. … and unemployment benefits are now more generous Note: For Lithuania, the results for January and July 2017 represent the situation before and after introduction of the New Social Model reform, respectively; 2015 for the remaining countries. Source: OECD (2018), OECD Reviews of Labour Market and Social Policies: Lithuania, OECD Publishing, Paris. 0 10 20 30 40 50 60 70 80 90 100 Greece Australia NewZealand UnitedKingdom Sweden Chile Korea Turkey Estonia Austria Ireland Germany Hungary Japan UnitedStates OECD Lithuania(pre) Spain SlovakRep. Poland Iceland Canada CzechRep. Norway Finland Slovenia Italy France Netherlands Denmark Belgium Switzerland Portugal Latvia Lithuania(post) Luxembourg Israel % Net Replacement Rates for a single person in unemployment, 2015 Top-ups (in the 3d month) Unemployment benefits (in the 3rd month) Unemploymnet benefits and top-ups (in the 9th month) 9
  10. 10. Private sector debt and house prices remain below historical peaks Source: European Central Bank; OECD Economic Outlook database; and OECD House price index database. 30 40 50 60 70 80 80 120 160 200 240 280 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % of GDPIndex, 2007=100 Credit growth and housing prices Nominal house prices Credit to private non-financial sector² (RHS) 10
  11. 11. Debt is falling but could decline further Note: Projected debt reduction paths under different deficit scenarios. Source: OECD calculation. 10 15 20 25 30 35 40 45 50 55 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 % of GDP No deficit Deficit 1% of GDP Deficit 0.5% of GDP 11
  12. 12. High social security contributions reduce employability of the low-skilled Source: OECD taxing wages database. -10 0 10 20 30 40 50 60 Chile Israel Ireland NewZealand Mexico Switzerland Korea Australia UnitedKingdom Netherlands Canada Iceland Luxembourg UnitedStates Portugal OECD Norway Japan Spain France Greece SlovakRep. Estonia Denmark Turkey Slovenia Finland Poland Belgium Italy Lithuania CzechRep. Austria Sweden Latvia Germany Hungary % of total labour cost Decomposition of the tax wedge, 2016 Single without children 50% of the average wage Income tax Social security contribution 12
  13. 13. Property taxes are low Source: OECD Revenue statistics database; and Ministry of Finance of Lithuania. 0 0.5 1 1.5 2 2.5 3 3.5 Luxembourg Switzerland Mexico Austria CzechRep. Turkey Estonia SlovakRep. Germany Norway Lithuania Slovenia Ireland Hungary Chile Sweden Finland Korea Portugal Latvia Netherlands OECD Spain Poland Italy Belgium Denmark Iceland Australia Japan NewZealand Israel Greece UnitedStates France Canada UnitedKingdom % of GDP Property tax revenues 2016 or latest year available 13
  14. 14. Key recommendations for more inclusive growth • Set a debt target and establish a credible path to reach it • Reduce social security contributions, especially for low-income workers • Increase property taxation, while exempting low-income households • Assess spending efficiency by carrying out spending reviews • Actively use macro-prudential measures once financial imbalances emerge 14
  15. 15. Productivity and inclusiveness: a twin challenge 15
  16. 16. Labour productivity is low Source: OECD Economic Outlook database. 0 20 000 40 000 60 000 80 000 100 000 120 000 140 000 160 000 Mexico Chile Latvia Hungary Estonia Lithuania Portugal Poland Greece CzachRep. Slovenia NewZealand Israel SlovakRep. Turkey Korea Japan OECD Spain UnitedKingdom Iceland Germany Italy Finalnd Canada Austria Australia Netherland Denmark France Sweden Switzerland Belgium UnitedStates Norway Luxembourg Ireland Labour productivity, USD PPP per worker, 2017 16
  17. 17. The labour market is not very inclusive 1. Calculated on the labour force aged 25-64. 2. Data refer to 2016. Source: OECD Gender employment database 0 5 10 15 20 25 30 Men Women 15-24 25-54 55-64 Low-skilled¹ Medium-skilled¹ High-skilled¹ Gender Age Educational attainment² Long-term UNR² % Group-specific unemployment rates (UNR), 2017 Lithuania OECD 17
  18. 18. Informality is high Source: Eurobarometer. 0 2 4 6 8 10 12 Poland European Union Lithuania Estonia Latvia % of population aged 15+ People carrying out undeclared paid activities 18
  19. 19. Insolvency procedures are cumbersome 1. The strength of insolvency framework index is a composite indicator of the quality of the insolvency framework based on the time, cost and outcome of insolvency proceedings involving domestic legal entities. Source: World Bank Doing business 2018 database. 0 2 4 6 8 10 12 14 16 Luxembourg Lithuania Turkey NewZealand Hungary Ireland Australia Austria Canada France UnitedKingdom Belgium Iceland Mexico Netherlands Norway Slovenia OECD Chile Denmark Greece Latvia Spain Sweden Switzerland Israel CzechRep. SlovakRep. Italy Estonia Japan Korea Poland Finland Portugal Germany UnitedStates Scale from 0 (worst) to 16 (best) Strength of insolvency framework index (0-16), 2017 19
  20. 20. Firms and research institutions could collaborate more Source: Eurostat. 0 5 10 15 20 25 Italy Latvia Lithuania Portugal Greece Poland Spain Ireland Luxembourg CzechRep. France Hungary Slovakia EU28 Germany Netherlands Estonia Sweden Denmark United… Slovenia Belgium Austria Finland % of innovating firms Firms collaborating on innovation with higher education or research institutions 20
  21. 21. Vocational education and training should be strengthened Source: OECD education at a Glance 2017. 0 10 20 30 40 50 60 70 80 Korea Japan Hungary Lithuania Chile Greece New… Iceland Spain Estonia Mexico Sweden Latvia United… Israel France Denmark Portugal Germany OECD Turkey Norway Poland Italy Australia Belgium Luxembourg Switzerland Slovenia Netherlands SlovakRep. Austria Finland CzechRep. % Share of vocational students on upper secondary students, 2015 21
  22. 22. Social support is relatively weak 1. 2017 for Lithuania, with Heating Compensation ("Lithuania (HC)") and without ("Lithuania (no HC)"). Source: OECD (2018), OECD Reviews of Labour Market and Social Policies: Lithuania, OECD Publishing, Paris. 0 10 20 30 40 50 60 70 Italy Turkey Greece Chile Hungary UnitedStates Spain Portugal SlovakRep. Israel Latvia Lithuania(noHC) Canada Korea Estonia OECD NewZealand Belgium Sweden France Norway CzechRepublic Poland Switzerland Australia Lithuania(HC) Slovenia Netherlands Luxembourg Austria Finland Germany Iceland Ireland UnitedKingdom Denmark Japan % Net income from minimum-income benefits as a % of the median equivalised household income, couple with two children, 2015¹ Net income from minimum-income benefits Poverty line 22
  23. 23. More should be done to get people back to work 1. Active labour market programmes (categories 2-7) include: cover training, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives. Source: OECD Labour database. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Australia Estonia Latvia Canada Israel New… Slovak… Slovenia Greece Lithuania Germany CzechRep. Poland Norway OECD Italy Spain Portugal Switzerland Ireland Belgium Netherlan… Austria Luxembo… France Hungary Finland Sweden Denmark % of GDP Public expenditure in activation programmes¹ 2015 or latest year available 23
  24. 24. Key recommendations for raising productivity and inclusiveness • Address skills mismatch by continuing the reform of the education system at all levels • Strengthen work-based learning, including apprenticeships • Continue the reform of innovation policy and strengthen collaboration between firms and research institutions • Simplify bankruptcy procedures and facilitate restructuring • Increase investment in active labour market programmes upon close monitoring of results • Further increase the level of social assistance while maintaining strong work incentives 24
  25. 25. Ageing together 25
  26. 26. The population is ageing Source: United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects. 0 10 20 30 40 50 60 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 % population 65+ on population 15-64 Old age dependency ratio, projections, 2010 - 2060 Lithuania EU OECD 26
  27. 27. The pension system is not targeted at the poor Source: Eurostat. 0 5 10 15 20 25 30 35 40 45 SlovakRep. Hungary CzechRep. France Denmark Luxembourg Netherlands Finland Greece Poland Spain Austria EU Italy Belgium Ireland Sweden UnitedKingdom Germany Slovenia Portugal Romania Bulgaria Croatia Lithuania Latvia Estonia % of population 65+ Old age population at risk of poverty, 2016 27
  28. 28. Life expectancy of men is low Source: Eurostat Health statistics database. 0 10 20 30 40 50 60 70 80 Latvia Estonia Lithuania SlovakRep. Austria Slovenia Finland Hungary Portugal Denmark Switzerland Poland Luxembourg France CzechRep. Netherlands UnitedKingdom EU28 Belgium Greece Germany Spain Ireland Italy Iceland Norway Sweden Healthy life years at birth for men, 2016 28
  29. 29. Health care is too hospital-centric Source: OECD Health Statistics database. 29 3.6 -10 -6.5 15.2 -2.1 2.2 -4.5 -4.4 12.3 -1.9 -15 -10 -5 0 5 10 15 20 Hospital care Outpatient care Long term care Medical goods Collective services Percentage points Health expenditure by function, difference to OECD average 2004 2015
  30. 30. Participation in life-long learning is low Note: Data refer to the share of 25 to 64 year-olds who participated in education or training in the 4 weeks prior to the survey. Source: Eurostat (2017), Education and training statistics database. 0 5 10 15 20 25 30 35 SVK POL GRC TUR LTU HUN IRL BEL LVA ITA DEU CZE ESP PRT EU28 SVN GBR AUT EST LUX FRA NLD NOR ISL FIN DNK SWE CHE % Participation rate in lifelong education or training, 25-64 year-olds, 2016 30
  31. 31. Net migration contributes to skill shortages Source: Statistics Lithuania. 0 10 20 30 40 50 60 70 80 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Thousands of persons Emigration and immigration, absolute numbers Emigration Immigration including return migrants 31
  32. 32. Key recommendations for an ageing society • Continue moving pensions from the pay-as-you go (first) pillar to the funded (second) pillar • Fund the wage-independent basic pension through the general budget rather than social contributions • Continue reorganising the hospital sector and improve outpatient and long-term care • Provide financial incentives for life-long learning to firms and employees, especially older • Reach out better to emigrants and ease restrictions for high-skilled immigrants • Extend and improve support for childcare, to help parents reconcile work and family 32
  33. 33. For more information 33 • Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. • This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. http://www.oecd.org/eco/surveys/economic-survey-lithuania.htm @OECD @OECDeconomy

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